Archive for May, 2011

There’s no shortage of blogs, articles and books written by pundits offering advice to executives on how to nurture innovation within their companies. Take, for example, this recent post on Finextra.

However, the question “why innovate?” seems to have acquired the status of a “holy cow”, judging from the relative lack of buzz around this subject.

Even at the risk of badly mixing my metaphors, we need to take the “bull by the horns” or innovators will forever go round in circles trying to make innovation happen in their companies.

Why?

Ever since Amazon was founded, we’ve been hearing about how its disruptive model would alter the status quo in the book retailing industry, but it has taken some 15-odd years for a Borders moment to occur. And, well before that, we’ve seen WebVan, WebMD and several other innovators flame out. While organizational change might be a long drawn out affair, changes in consumer behavior don’t happen overnight either.

This brings us to the equally important question of “why innovate”, especially in highly-regulated industries and in ones where not too many players seem to be doing it anyway. As long as companies are under the pressure to meet quarterly numbers or else face the wrath of Wall Street, innovators will continue to be weighed down by naysayers in their midst posing this question.

I think the way out is to package innovative products and services in bite-size chunks and aim for ‘early wins’ so that there’s a win-win for all parties concerned.

Let’s take Amazon, for example. Ever since the online book retailer was founded, we’ve been hearing about how its disruptive model would annihilate Barnes & Noble, BORDERS and all other leaders in the book retailing industry in no time. However, note that it has taken some 15-odd years for a Borders moment to occur. Likewise, in the case of NetFlix v. Blockbuster. On the other hand, we’ve seen WebVan, Pets.com, WebMD and several other innovators hit the deadpool well before this period. While guidebooks can help companies to fast track their internal innovation process, they can’t bring about large scale changes in consumer behavior, without which innovation can’t deliver business results.

In short, innovation takes time, often costs a lot of money and rarely achieves commercial success.

Therefore, we can’t blame companies if they ask the “why innovate?” question, especially in industries that are highly-regulated (e.g., utilities) and where not too many players seem to be doing it anyway (e.g. banking). As long as corporations are under the pressure to meet quarterly numbers or else face the wrath of Wall Street, innovators in their midst will continue to be weighed down by naysayers posing the “why innovate?” question, even if they do so only within the confines of their offices (for no one would like to be caught on the 6 o’clock news challenging the holy cow).

The way out?

As this article says, it’s the little ideas that turn into billion dollar businesses. Innovation needs to be packaged into bite-size products or services that can deliver ‘early wins’. The greatest priority for the innovator is to prove that they can make a positive impact on the company’s P&L in the short-to-medium term.

Only then will they get the chance to change the world and leave their name on their company’s grand vision (assuming they want to do so!).

A few weeks ago, when I read that ISIS was ditching Discover and deciding to tie up with Visa and MasterCard, something didn’t quite add up. After all, it was the company’s raison d’être to create a new payment network on top of its backers’ massive mobile networks. Besides, since ISIS had the backing of Verizon Wireless and other leading American mobile network operators, its mission to set up an alternative to the decade-long card networks operated by Visa, MasterCard and American Express didn’t seem so far-fetched.

When I read about the background to ISIS’ latest decision in this GigaOm post recently, I got the feeling that either American retailers are contradicting themselves or we haven’t heard the last of this story yet.

American retailers have been protesting vehemently to regulators (Dodd-Frank-Durbin et al) that the Visa/MC payment network oligopoly is exerting a very tight stranglehold over them. So tight that they’re unable to decline credit / debit cards from customers despite having to fork out ‘exorbitant’ fees. Known by various names like ‘merchant fee’, ‘merchant discount’ and ’swipe fee’, this fee is levied as a percentage of the retailer’s sale value. The exact percentage ranges from 1% to 3.5% depending upon the card type, merchant category, type of merchandise, mode of acceptance and a few other parameters. It doesn’t sound exorbitant to me but retailers from all over the world have gone to great lengths to dramatize the fees they pay for the privilege of accepting card payments. Home Depot says that its merchant fee exceeds its employee healthcare costs. India’s leading retail chain ‘Big Bazaar’ avers that its merchant fees are as much as 50% of profits it returns to its shareholders. Many others have used similarly sensational metrics to make their case in this rapidly unfolding drama.

So, when ISIS goes to them with an offer to set up a spanking new alternative payment network, do retailers give it a warm welcome? Are they overjoyed that someone has finally come to deliver them from the clutches of Visa and MasterCard?

No.

According to ISIS, retailers and merchants say they’re not interested. Yeah right, not interested.

Their stance sounds highly contradictory. It seems as though American retailers want to have their cake and eat it too. Unless ISIS

Insisted that retailers had to break off their long-standing ties with Visa/MC if they wanted to join ISIS’ new payment network, or

Quoted merchant fees that were higher than Visa/MC’s.

Something tells me it’s (2).

Mighty as it is, I doubt if ISIS was ever under the illusion that Visa/MC could be pushed out of the retail payment loop. My guess is, ISIS must’ve realized that it was a pipedream to establish a widespread payment network from scratch and operate it profitably at lower merchant fees compared to Visa and MasterCard who’ve been around the block for decades.

On a related note, the last couple of years have seen the launch of scores of alternative payment methods that are based on ACH, FPS, SVP, TELCO BILLING, and so on. I’m sure Gen Y Mobile Payments like Boku and Zong who charge merchant fees as high as 30% are an aberration, but I wonder how many alternative payments are around that are free for the customer / payer and cost less than Visa/MC for the merchant (Cash and checks don’t qualify!).

After trying and failing to locate a trusted plumber, electrician and handyman via yellow pages and other directory services, I recently came across GigPark. Its promise to leverage my social network to become the easiest way to “discover the trusted local businesses your friends use” seemed like manna from heaven. I rushed to GigPark, registered immediately and linked it to my Facebook and Twitter accounts.

But when I asked GigPark to identify suitable service providers trusted by my friends, it sadly drew a blank.

My initial reaction was, well, GigPark is probably a new service and it should improve over time as more people sign up to it.

However, on second thoughts, I’ve begun to wonder how GigPark will ever have much relevance to me in my search for a plumber, electrician or handyman. Unlike books, music or even software development, these are hyper-local services for which recommendations – assuming they start pouring in some day – of my Facebook friends and Twitter followers located far away from me hardly count. What I need is the opinion of people living in my local neighborhood who would’ve had a chance to use these service providers. Many of my neighbors are on my private address book. Like I guess it is with most others, they’re not a part of my public ‘friend’ or ‘follower’ social graph, even if many of them are on Facebook and Twitter. This means that GigPark won’t be able to display their recommendations to me even if they sign up to GigPark and submit feedback about their favorite plumbers, electricians or handymen who’re likely to be from my neighborhood.

This suggests that there’s a strong need for some sort of “network glue” that ties together – albeit temporarily – a person’s private and public social graphs. If and when such a glue becomes available, GigPark and other similar platforms will be able to tap into it to show relevant recommendations from my neighbors for local services. On the other hand, without such a glue, the value of such platforms is limited. I’d love to hear your comments.

Although the website has a contemporary look-and-feel, I got a bit perplexed when I saw a page (http://www.bankwest.com.au/forms) full of forms to be downloaded and snail-mailed to the given address. Clicking the APPLY button against checking account simply took me to an online form that I had to complete and wait for someone to contact me. For credit card, I couldn’t even find such an APPLY button.

A quick chat session confirmed that the portal did not support online issuance of any product – they need a branch visit to apparently verify the applican’t identity. They don’t seem to be using one of the online identity verification web services available in Australia. I’m not sure if they’ve even drawn enough inspiration from their local banking competitors, let alone online shopping portals!

A couple of years ago, we’d created a marketable item around Web 2.0 technologies that was targeted at banks. At the time, we’d inferred a growing interest in online shopping for financial products when an increasing number of Gen Y / Millennials began to ask, “If I can buy a book, CD or, even a car, online, why should I visit a branch to open a checking account?”

Given this background, I was very excited when I recently read that a leading bank in Australia launched a new Internet Banking portal that was inspired by online shopping portals. This seemed to be just what our marketable item was urging banks to do and, for the first time in our knowledge, a bank seemed to be publicly acknowledging the superior functionality offered by the Amazons of the world.

When I checked out the bank’s new website, I found it to be full of images bearing the trademark transparent colors of Web 2.0, which is increasingly becoming the hallmark of most e-commerce portals.

Lots of eye candy!

Complete a form and we'll get back to you!

However, when I scratched the surface, I was perplexed to see a page full of forms to be do be downloaded and snail-mailed to the given address. Yes, that’s right, snail-mailed. Clicking the APPLY button against checking account took me to an online form that I had to complete and submit, then wait for someone to contact me in 24-72 hours. For credit cards, although I found a COMPARE feature that is customary with high-end e-commerce portals, I couldn’t spot any APPLY button.

Branch visit is mandatory!

A quick chat session with a customer service representative confirmed that the bank’s portal did not support online issuance of any product. Apparently, the bank needs the potential customer to visit a “store” – that’s branch for you and me – in order to verify the applicant’s identity and address. The portal didn’t seem to be using any online identity or address verification web services that have been available in Australia for at least the past two years.

Let alone online shopping portals, this bank hasn’t even drawn sufficient inspiration from its own competitors in the local banking market, at least one of which offers end-to-end online account opening functionality on its next-generation website. (Since there seems to be some confusion around the term ‘online account opening’ , let me clarify: You go to the website, select a checking account product you like, submit the required information, get your account # if your application is approved, transfer funds from another account to this new one if you like – all in a single session and in under a couple of minutes.)

It’s high time banks realized that UX is much more than eye candy. It involves, among others, frictionless solutions that let users fulfill their goals of visiting a website as seamlessly as possible.